The Civil War and The Roots of Income Taxation: 1861-62
by Adrian Banks
"I may incidentally remark, that having in my life heard many arguments - or strings of words meant to pass for arguments - intended to show that the negro ought to be a slave - if he shall now really fight to keep himself a slave, it will be a far better argument why he should remain a slave than I have ever before heard. He, perhaps, ought to be a slave if he desires it ardently enough to fight for it. Or, if one out of four will, for his own freedom, fight to keep the other three in slavery, he ought to be a slave for his selfish meanness. I have always thought that all men should be free; but if any should be slaves, it should be first those who desire it for themselves, and secondly those who desire it for others. Whenever I hear anyone arguing for slavery, I feel a strong impulse to see it tried on him personally." Abraham Lincoln, March 17, 1865
The people who exercise power over us today have gone to great lengths to try to make people believe that our compensation for labor can be taxed. Compensation for labor, as we all know, is usually in the form of wages. The first income tax in the United States was back during the Civil War. So, let us examine the roots of the income tax as revealed by the debates in Congress back then. Let the words of the Senators and House members reveal to us what the meaning of the word "income" is, and whether or not wages fall withing the meaning of the word "income."
I encourage all people to study things for themselves, like I have. Do your own research and think for yourself. This is the antidote to brainwashing. The congressional globe is available online. Here's the link: Congressional Globe.
Study the debates on the 13th and 14th amendments; study the tax bills; study the debates on the Freedman's Bureau; study the debates on the Civil Rights Act of 1866; study the debates of the Civil Rights Act of 1871; and study some more. As Solomon said long ago: "For in much wisdom is much grief; and he that increaseth knowledge increaseth sorrow."
Before we begin examining the debates in Congress on the income tax from back then, let's get an idea of what workers made back then from some different sources. The first exemption rate for income tax was $600 in 1862.
Wayne County, Tennessee Federal Census Records, 1860
"The prices for raw materials in the census show the usual prices for these things in 1860. Logs worth $0.50-1.00 each were sawed to produce lumber worth about $9-35 per thousand board feet. One exception is the sawmill of J. and Edward B. Martin (line 12c), but it seems likely that this record is erroneous; the mill probably produced 30,000 bd. ft instead of 3,000 bd. ft of lumber in the previous year. The records also show that pig iron was worth about $2.50/ton, farm wagons cost about $40 each, sole leather cost about $0.20-0.25/lb., flour cost about $5.40/bbl. (3.3 Bu.), and cornmeal was worth about $0.60/Bu. Wages seem to have been $15-30/mo for men. One business reported a $40/mo wage , but it seems likely that this was for two employees. The only woman who was apparently working full time at an industry in Wayne County was paid $12/mo.... If all significant expenses are shown in the 1860 census of manufacturing for Wayne County, raw materials costing $69,225 per year and labor costing $24,120 produced goods worth $130,252. The total profit made by the industries in the census was $36,907 per year on invested capital of $148,300. These industries thus made an average profit of 25% on the investments..... The census data show that the average factory wage in 1860 was about $20/mo. or $240/year compared with a median farm profit of about $150/year in Wayne County. Using an inflation factor of 175, as discussed previously, the equivalent factory wage today would be $42,000/year. Factory workers had to purchase food, fuel, clothing, and shelter (although room and board were provided by some employers.), but they didn't have to make investments in land, animals, and equipment. Factory workers also didn't have crop failures caused by bad weather or other risks associated with farming. By 1860, the lure of relatively high factory wages had already started a small migration from rural areas and hamlets to large cities; as wages slowly rose, this trend accelerated."
Representative James Moorhead of Pennsylvania, on the floor of the House of Representatives on April 28, 1866, made a speech entitled "The Nation and it's Labor." Speaking of the workers engaged in the production of iron, he said: "Including the miner, the millmen, mechanic, clerk, and manager, the average rate of wages paid to men engaged in this country is two dollars per day..."
That would equate to $10 per week for a 5 day work week. If the worker worked, say, 50 weeks per year, then that would equate to annual wages of around $500. These were some of the highest paid workers in the country at the time. Representative Moorhead concluded his speech with the following words:
"All experience demonstrates the necessity of self-protection among nations. The American legislator who is blind to this truth must be ignorant of the business history of his own country as well as that of the civilized world. No nation can prosper without regarding its special capabilities, without developing them, without using the advantages which God has given it. With us this is a peculiarly imperative duty, because our labor is not only our financial need, but it is our political sovereign. Our government rests upon its laborers; our strength comes from them. As they sink the nation sinks; as they rise the nation rises in all the components of greatness and power. Let us be just to these willing giants who support the fabric of freedom, and the jewel of liberty will remain forever, blessing our children's children."
Representative Ignatius Donnelly of Minnessota, on the Floor of the House of Representatives on February 1, 1866, spoke out in favor of expanding the powers of the Freedman's Bureau to combat the reënslavement of the freedmen. The former rebel states were enacting laws that were called the "black laws" which were making the newly freed slaves the slaves of society. Mr. Donnelly said:
"We have liberated four million slaves in the South. It is proposed by some that we stop right here and do nothing more. Such a course would be a cruel mockery. These men are without education, and morally and intellectually degraded by centuries of bondage. They have neither the arts nor the knowledge nor the power of combination to protect themselves against the superior race from whose grasp they have just been forcibly wrested. That race did not willingly yield them up; to abandon them to their former masters would be to consign them once more to inevitable slavery. The master would have every inducement to reënslave his former bondsman, and not a single barrier would stand in his way. But it may be said that the amendment to the Constitution prohibiting slavery would protect them. Sir, a grand abstract declaration, unenforced by the arm of authority, is not a protection. But gentlemen seem to forget that slavery is not confined to any precise condition. Every country tolerating slavery has affixed to it conditions peculiar to itself. The old Roman slavery was in many essentials different from the southern institution, and modern slavery has presented many different phases. Slavery consists in a deprivation of natural rights. A man may be a slave for a term of years as fully as though he were held for life; he may be a slave when deprived of a portion of the wages of his labor as fully as if deprived of all; he may be held down by unjust laws to a degraded and defenseless condition as fully as though his wrists were manacled; he may be oppressed by a convocation of masters called a Legislature as fully as by a single master. In short, he who is not entirely free is necessarily a slave."
Let us now examine the debates in the 37th Congress on taxation.
"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." (16th Amendment, U.S. Constitution, ratified February 3, 1913)
37th Congress, 1861-62, Tax Debates
July 16, 1861, House
Mr. STEVENS, by unanimous consent, from the Committee of Ways and Means, reported a bill to provide increased revenue from imports, to pay interest on the public debt and for other purposes, which was read a first and second time, referred to the Committee of the Whole on the State of the Union, ordered to be printed, and made the special order for tomorrow at one o'clock.
Mr. VALLANDIGHAM. I trust that a reasonable time be allowed for the discussion of that measure. Discussion is required more on such a measure than on any others, because an erroneous financial policy now instituted may embarrass the country for years to come.
July 24, 1861, House
Mr. PIKE. Now, it is objected by the gentleman from Ohio [Mr. Bingham] that we have no constitutional power to assess a tax upon personal property. Very well. That provision of the Constitution applies to the assessment of direct taxes, eo nomine, upon the States. Now, my proposition, which I submit to the Committee of the Ways and Means, is to assess such a tax as shall affect not only real property, but personal property. And still further, it shall affect property only; and still further, following the example of the English income tax, that it shall affect property not only held by people in this country, but by people abroad. It is very well known that English income tax, which is now seven pence on the pound on the income exceeding £150, produces a large sum. The public debt of Great Britain, whether held at home or abroad, is assessed, and the governors and directors of the Bank of England are made commissioners for the purpose of collecting that tax; as also are the directors of the South Sea Company made commissioners for collecting the tax. So the managers of other corporations. If we levy an income tax of ten percent, according to the recommendation of the Secretary of the Treasury, it will give us a large revenue from the officials. But let it go further. A tax upon income rising from estates, and from personal property, is assessed as directly upon the property of the country as any tax can possibly be. You have, then , this advantage from an income tax; you have it upon real estate and upon personal property.
Mr. FESSENDEN. I am free to say, however, from all the consideration I have given to the subject, that I am inclined very much to favor the idea of a tax upon income, for the reason that, taking both measures together, I believe the burdens will be more equalized on all classes of the community, more especially on those who are able to bear them. I am perfectly aware that, if we should resort to a tax upon incomes instead of those which are proposed in the bill which is now being acted on in the House of Representatives, and if Congress should finally come to that conclusion, the burden, if burden it is, will fall much the most heavily on the Atlantic and Middle States.
July 29, 1861, Senate
Mr. SIMMONS. I think the Senator from Delaware has hardly devoted his usual consideration to this question. Here is a proposition to tax ordinary income 5 per cent, but to tax the income from Government securities one half of that; and he thinks that will hurt the value of Government securities. We put it there on purpose to make it better; and instead of its being 2½ per cent, on the property, it is 2½ per cent, on the income over $1000. If a man has $100,000 of 6 per cent stocks, he would only have to pay $150 tax on the income; that is 2½ per cent on $6000. If he had no other income, he would only have to pay $125. [note: Here is an example of taxing income derived from its source. The source is the $100,000 invested in stocks. The income is the $6000 profit from the 6% return on the stocks.]
Mr. SIMMONS. A man will say his house lost five or ten per cent by the wear of it; that the tenants have destroyed the wood-work, and all those kind of evasions; but nobody can mistake the word "income." It is the net profits of a man for the year...
April 3, 1862, House
Mr. STEVENS. I move now to return to the sections some time since passed over informally, relating to the income tax... There being no objection, the committee returned to the eighty-third section, which repeals the income duty in the tax bill of the last session.
The eighty-fourth section was read, as follows:
Sec. 84. And be it further enacted, That from and after the first day of May next, there shall be levied, collected and paid annually, upon the annual gains, profits, or income of every person residing in the United States, whether derived from any kind of property, rents, interest, dividends, salaries, or from any profession, trade, employment, or vocation carried on in the United States or elsewhere, or from any other source whatever, as except as hereinafter mentioned, if such annual gains, profits, or income exceeds the sum of $600, a duty of three per cent on the amount of such annual gains, profits, and income over and above the said sum of $600; and upon the annual gains, profits, or income, rents, and dividends accruing upon any property, securities, and stocks owned in the United States by any citizens of the United States residing abroad, except as hereinafter mentioned, and not in the employment of the government of the United States, there shall be levied, collected, and paid a duty of five per cent.
Mr. STEVENS. The words "gain" and "income" mean the same thing. They are equivalent terms. They mean the net profits. You cannot have any gains until you pay the expenses. What it costs to produce is to be deducted, and then there will be left only the net profits.
Mr. DIVEN. It is said that the wages paid to the hired laborer is to be deducted in calculating the income; but let it be borne in mind that almost the entire agriculture of the country is carried on by the farmer and his sons by his own family. The agricultural labor performed by hired men is almost nothing as compared with the entire agricultural labor of the country. The man on his fifty acres or on his one hundred acres tills and cultivates his farm with his own hands, aided by his sons in their minority, and who get nothing for their services but their board and clothes. This man is taxed for the entire income of his farm; while the gentleman farmer who oversees his hired men on his broad acres, deducts their wages from the amount of his income.
Mr. DIVEN. What I desire is to have the income tax confined to the production of investments. That is what is meant by income tax the world over.
May 28, 1862, Senate
Mr. SUMNER. I offer an amendment as a new section, to come in on page 128, before "stamp duties:"
And be it further enacted, That any person who shall claim the service or labor for life of any other person under the laws of any State shall pay, on account of such person so claimed, the sum of ten dollars.
Mr. SUMNER. A tax of ten dollars on account of each slave will give $40,000. And in putting the tax at ten dollars, I follow the precedent of the Constitution, which taxes slaves imported at ten dollars.... In taxing it [slavery] we do not assume its rightfulness. We only assume its undeniable existence as a fact, and nothing else. If our tax were in the nature of an encouragement, it would be clearly immoral. But it will be a discouragement. Exemption from taxation is encouragement. Taxation is discouragement just in proportion to its extent, until, in the progress of events, it becomes destructive. Looking at the present question in the light of this principle, our course is plain. It is not permissible that we should encourage slavery, while every principle of economy and every sentiment of justice and humanity urge its discouragement.
The VICE PRESIDENT. The amendment of the Senator from Massachusetts will be read as he now modified it.
The Secretary read it, as follows:
Sec.. And be it further enacted, That an annual tax of five dollars shall be paid by every person or persons, corporation, or society, for and on account of the service or labor of every other person between the ages of ten and sixty-five years, whose service or labor, for a term of years or for life, is claimed to be owned by such first mentioned person or persons, corporation, or society, whether in a fiduciary capacity, or otherwise, under and by virtue of the laws or customs of any State; and said annual tax shall be levied and collected of the person or persons, corporation, or society, making such claim, and of their goods, chattels, or lands, as is hereinbefore provided; but in no case shall the person or persons whose service or labor is so claimed, or their service or labor, be sold for the purpose of collecting said tax: Provided, That this tax shall not apply to service due to parents.
Mr. SUMNER. I will make one remark in reply to the Senator from Ohio. He objects to my proposition as being in the nature of a direct tax or poll tax. How is this? Has not the Senator voted to tax auctioneers, lawyers, jugglers, and slaughterers of cattle, all of them classes of persons in the community?
Mr. SHERMAN. To tax their employments.
Mr. SUMNER. And we propose to tax the employment of the slave-master, that is all. It is the business of the slave-master to make the slave work. This is his high vocation. In other words, his business is all embodied in the claim to the service and labor of another. And to this class of persons he belongs. He is an auctioneer of human rights; a broker of human labor; a juggler of human sufferings and human sympathies; I might say a slaughterer of human hopes; and, sir, if the Senator from Ohio can tax an auctioneer, or a broker, or a juggler, or a slaughterer of cattle, I am at a loss to understand why he cannot tax the special form of these vocations which all concur in the slave-master. He can tax the less, but he hesitates to tax the greater. He can tax the petty employment, which is not immoral or cruel; but he will not tax the larger multiform employment, which is immoral and cruel.
Mr. KING. Congress and the Federal Government do not create slavery or sustain slavery; they do not even, in my judgement, sustain the right of the master to the service of the slave; but this right or claim exists by the authority of the State law, as much as the right of the tavern keeper to sell liquor and keep a tavern exists by the authority of law of the State from which he derives his license. There is a substantial interest in such a grant to an individual under the authority of State law. Whether right or wrong, in morals or in law, by the authority of the State government the master holds his slave to service, has the benefit of his labor, and enjoys its products. It is that claim to that service which is taxed, and not the person of the master or the slave; and it seems to me to be a distinct interest. We cannot deny the fact that these people exist in some of the States in that condition. It is against my idea of what is just. I never would have made a law to make a slave, nor would I continue a law to hold one, but I have not the authority to make laws in those States; the people of those States have made them, and they have given to one portion of their citizens the right to the service of other persons in their States; and it is a right which those people hold to be most valuable. It is the estimate they themselves place on this right to hold slaves that is the cause of all our difficulty. They have risked all of their rights, their lives, and they are assailing the existence of the country to preserve the claim which they hold to the service of these persons, and to extend it over more territory. Without that we should have had no difficulty. Shall we not tax a claim or a right which these people hold so valuable? It seems to me that it is as clear and suitable subject of taxation as any which exists.
Mr. SUMNER. But the remarks of the Senator were occupied chiefly with two heads; first, a eulogy on slave-masters; and secondly, a vindication of his proposed tax on cotton. I have little to say on the Senator's eulogy on slave-masters. There are two authorities on that head which the Senator will pardon me if I place above him. I mean Mr. Jefferson and Colonel Mason, in our early revolutionary days. Mr. Jefferson had assured us that the whole commerce between master and slave is one of boisterous passion, ending in barbarism. Colonel Mason exclaimed in debate in the convention that framed the Constitution, that every slave-master is a petty tyrant. And yet, sir, in the face of this authentic testimony, from persons who knew slavery and all its influences, the Senator comes forward with a eulogy on slave-masters, to plead for their exemption from taxation. Eulogies are for the dead. I do not wish to add to all the odium which justly belongs to a tyrannical class; but I do insist that justice shall be done to their victims; and when the Senator interposes his eulogies, I interpose, in reply, the rights which have been violated; and let me say that so long as men persist in such outrage, so long as they persevere in maintaining an institution which annuls the parental relation, the conjugal relation, the right to instruction, the right to the fruit of one's own labor, and does all this merely to make men work without wages; so long as men support such an unjust and irrational pretense, they cannot expect from me any soft words. If the Senator from Ohio can find it in his generosity to sound eulogies in their praise, he must excuse me if I decline to follow him. He does not know them as well as I do, nor does he know their victims as well as I.
May 29, 1861, Senate
Mr. CLARK. The Senator from Kansas will allow me to make a suggestion to him. The tax referred to by Story, the tax on which his remarks were made, was a direct tax on persons or on States; these remarks were not made in regard to a revenue tax or a tax upon income. The Senator objects to the tax as a matter of punishment, and I certainly would not tax the master as a matter of punishment for holding his slave. He objects to the tax on the claim of the master to the slave, because he denies that the master has any such claim; but taking the fact that the master hold him and gets an income from him, would he not tax that income? That is the point. You deny his right to the claim, but the master still holds him, and does get the advantage of an income out of him.
Mr. SHERMAN. I ask my friend from New Hampshire if a tax on all the white males above the age of twenty-one years in the United States would not be a capitation tax withing the meaning of the Constitution, where you take only a particular class?
Mr. CLARK. It may be, but the white man stands on a different footing. He owes no service to anybody. You are not taxing the slave himself, but the income which the master gets from the slave.
Mr. SHERMAN. That is, as understand my friend, he proposes a different rate of taxation on the income derived from a slave and the income derived from any other property.
Mr. SIMMONS. I do not charge anybody with intending to have that effect in this regard; but in reference to the income tax, and almost all pursuits, the bill only makes impositions upon income or upon business yielding over six hundred dollars a year, intending by the whole theory of the bill that an amount sufficient to support a family in a moderate way should be exempt from taxation. That is the general theory of the bill; but if you look into it, you will find that here are taxes upon all the ordinary forms of investments by ordinary men in railroad bonds, insurance stocks, bank stocks, and savings banks. Men of small means hardly ever put into a savings bank an amount that will bring the half of $600 a year. In our State we do not let anybody put in more than $5000; but taxes are imposed upon the dividends, the receipts, and the earnings of the various institutions where the industrial classes place their little earnings in order to get interest upon them. All these receipts are taxed three per cent, no matter if the amount does not come to three dollars, whereas with the wealthy $600 is invariably exempted. I do not know whether those who drew the bill thought of this, but it only shows that where you come to tax those whose wealth looms up prominent, there seems to be a disposition to relieve them in all forms possible; and whenever you come to these little items, no matter whether they are half or quarter enough to support a family, the tax is put on at once without any of these exemptions.
Mr. SIMMONS. Now, I want to say a word about these sources of revenue in contradistinction to those contained in the bill. In the first place, the income tax is a tax upon accumulated wealth. No man will be taxed if he has not accumulated and got an income of over $600 a year. I put it at $1000 in the bill I framed last year; the House of Representatives then fixed it at $600, and we compromised in the bill last summer at $800. It has now been brought down to $600, and I shall not propose to go higher.
February 10, 1871, House, (Appendix to Globe, 41st Cong., 3d Sess., pg. 103)
Mr. NEGLEY. Mr. Speaker, the Secretary's assertion that it would not be just at once and completely to relieve those who are now liable to pay income tax is utterly unsupported by anything warranted in our Constitution or the spirit of our republican institutions, and is absolutely untenable in view of his own admission, that out of forty million citizens scarcely one hundred thousand come under the present provisions of the law. [note: This means that only around 1/4 of one percent of the people back then were liable to the income tax laws.]